Taxation of Couples in European Countries∗

This paper uses the EUROMOD microsimulation model to estimate effective marginal and participation tax rates for couples in 15 EU countries. Each couple has two potential sources of earned income: primary and secondary earnings. We examine the degree and nature of jointness in the tax and transfer schedules, and compare this to recent normative prescriptions from optimal income tax theory. Using a simple model of labor supply, we further quantify the equity-efficiency trade-off from increasing redistribution to one- and no-earner couples. Based on the existing empirical evidence, which demonstrates that the extensive margin is far more responsive for females than for males, we conclude that, in most countries, such a policy is undesirable unless the redistributive tastes of the government are extreme